Hallmark of Jeffersonville, L.P. is a developer of multi-family apartment buildings. In 2006, Hallmark planned to develop three multi-family apartment buildings in the City of Jeffersonville (the “City”). Two of the three buildings were to include twenty-four units and the other one was to include thirty-two units. Hallmark inquired with the City as to the cost of the necessary permits. The City informed Hallmark, on December 28, 2006, that it owed the City a total of $120,000, or $1,500 per unit, in order to connect to the City’s sewer system (this fee is known as a “tap-in” fee). Hallmark submitted the $120,000 tap-in fee by January 5, 2007 and the City agreed to connect Hallmark’s development to the sewer system. After Hallmark’s submission of its payment, it realized that it may have paid more than what was necessary under the City’s sewer tap fee ordinance and believed that it had been overcharged.
Under the relevant ordinance, Ordinance 63, Hallmark believed that the City charged it a tap-in fee associated with residential lots, rather than the fee associated with “[m]ulti-family units larger than a duplex.” Hallmark calculated a tap-in fee of $15,000, an amount $105,000 less than what the City had charged it. Consequently, on September 2, 2007, Hallmark submitted a claim for a refund of its $105,000 overpayment, which the City’s sewer board (the “Sewer Board”) denied two days later.

Hallmark filed a complaint against the city on September 25, 2007. After over two years of litigation, a bench trial was held on November 5, 2009. The court entered judgment in favor of Hallmark on December 23, 2009, finding that “based upon a clear and unambiguous reading of the Ordinance No. 2004-OR-63 that the actual sewer tap-in fee owed by plaintiff was [$15,000] . . . for 80 multi-family units.” The court also held that the voluntary payment doctrine did not apply to bar a recovery by Hallmark, finding that Hallmark’s payments were not voluntary under the holding of Time Warner Entertainment Co., L.P. v. Whiteman, 802 N.E.2d 886 (Ind. 2004), reh’gdenied. The City appealed.

The Indiana Court of Appeals addressed three main issues. First, whether the interpretation of Ordinance 63 was correct. Second, whether Hallmark waived its right to challenge the interpretation of the ordinance when it chose to pay the tap-in fee as invoiced. And third, whether the voluntary payment doctrine applied to Hallmark’s payment.

The Court resolved the first two issues rather quickly. First, the Court reviewed Ordinance 63 and the evidence on the record with regard to the payment calculation. It found that the evidence supported the trial court’s findings and conclusions, that the proper sewer tap-in fee was $15,000, not $150,000, based on the nature of Hallmark’s building project and the number of units in the project. Next, the Court found Hallmark had not waived its right to challenge the ordinance when it paid the tap-in fee based upon the City’s interpretation of the ordinance. The Court pointed to Ind. Code § 36-9-23-28.5, which provides that “[a]n overpayment of sewer fees that remains unclaimed by a payor for more than seven (7) years after the termination of service for which the overpayment was made becomes the property of the municipality,” and held that because Hallmark’s overpayment had not remained unclaimed for more than seven years, Hallmark had not waived its right to seek a refund.

Whether the voluntary payment doctrine applied to Hallmark’s overpayment was the main issue in the case. The lower court held that the voluntary payment doctrine did not bar a recovery by Hallmark. The City argued that Hallmark voluntarily and intelligently agreed to pay the tap-in fee as billed and that the trial court’s decision to order the City to repay Hallmark was contrary to the law set forth in Time Warner. This Court affirmed the lower court’s determination and applied Time Warner’s voluntary payment factors to Hallmark’s overpayment.

(Part 1 of 2. Part 2 will be posted on 4/11/11)

Jeremy L. Fetty is a partner at Parr Richey whose practice focuses on corporate law, utility law, municipal law, and labor and employment law. The statements contained herein are for information purposes only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have questions regarding this article, please contact an attorney.

Partner Highlights

JAMES A.L. BUDDENBAUM is a partner with the Indianapolis office of Parr Richey Frandsen Patterson Kruse LLP, where he concentrates in corporate law, acquisitions, business transactions, utility, real estate, employment, and complex insurance, and other business litigation. more ›

KENT FRANDSEN has practiced with the firm since 1977, concentrating in civil litigation, zoning and land use, electric utility, estate planning and estate administration, and education law. more ›

PAUL KRUSE graduated cum laude from Indiana University School of Law at Indianapolis in 1981 and has been a partner in the firm since 1984. more ›

MIKE SCHULTZ concentrates his practice on civil litigation. He routinely handles a wide variety of employment related disputes, representing both business and employees, and is a frequent lecturer on compliance with federal employment laws. more ›